WH Group Pulls $1.9 Billion IPO as Bottom Price Said Snubbed

WH Group Ltd. pulled the plug on a $1.9 billion Hong Kong initial public offering as senior executives resisted selling shares at the low end of a marketed range, people familiar with the matter said.

The world’s biggest pork producer canceled what initially would have been the city’s biggest IPO in more than three years and will return investors’ money, it said in a statement late yesterday. WH Group originally targeted a sale of as much as $5.3 billion and last week cut the size of the deal by more than half.

WH Group’s flop underscores how volatile stock markets are undermining IPOs just as Alibaba Group Holding Ltd. prepares to file for a U.S. first-time share sale. The company struggled to convince investors to pay the lowest valuation executives were willing to accept even after using 28 underwriters, a record for a Hong Kong IPO, the people said.

“It’s a very high level IPO,” said Brett McGonegal, executive managing director of Hong Kong-based advisory firm Reorient Group Ltd. “What would have been even worse would be to push it through and have it flounder.”

The company had received bids from investors that exceeded the stock available to them, Morgan Stanley, which was in charge of the order book, said in an e-mail to other bookrunners on Monday. The book was “well oversubscribed and continues to build,” according to the e-mail from Morgan Stanley executive director Alex Abagian, a copy of which was seen by Bloomberg News.

Harriet Ngan, a spokeswoman for Morgan Stanley, couldn’t immediately comment on the e-mail. A Hong Kong-based external spokeswoman for WH Group had no comment.

Smithfield Purchase

The shares were offered at HK$8 to HK$11.25 each, valuing WH Group at 15 times to 21 times estimated 2014 earnings, the people said. Executives at the company had earlier told bankers they wouldn’t accept a valuation of below 16.5 times earnings, according to two people familiar with the deliberations.

Henan Shuanghui Investment & Development Co., a meat processing unit of WH Group, trades at 16.2 times estimated 2014 profit in Shenzhen, according to data compiled by Bloomberg. In September, the company bought Smithfield Foods Inc., the biggest U.S. pork producer, at 12.9 times estimated profit for the year ended April 2014, the data show.

Chairman Wan Long and executive director Yang Zhijun received shares worth a combined $597 million as a bonus for helping complete the $4.7 billion acquisition, the biggest Chinese purchase of a U.S. firm, according to WH Group’s IPO prospectus.

Pared Offerings

WH Group planned to use proceeds from the offering to repay debt used to finance the Smithfield takeover, the prospectus shows.

The Chinese pork supplier pulled its IPO after Japanese hotel operator Seibu Holdings Inc. and Weibo Corp., which runs a Chinese microblogging service, pared their share sales this month. Hong Kong’s benchmark Hang Seng Index has fallen 5 percent this year, the second-worst performance among developed markets, according to data compiled by Bloomberg.

“In light of deteriorating market conditions and recent excessive market volatility, the company, having consulted the joint sponsors, has decided that the global offering will not proceed at this time,” WH Group said in its filing.

Alibaba said last month it will file for a U.S. initial public offering, which could raise about $20 billion based on analyst estimates. China’s largest e-commerce company is opting for the U.S. after failing to persuade Hong Kong regulators to permit a proposed corporate governance structure that would have given management a greater say in board nominations.

Bottom End

WH Group planned to sell the shares at near the bottom end of the range, people familiar with the deal said earlier. The company was due to price the reduced offering yesterday, they said.

Existing owners including Goldman Sachs Group Inc. and Temasek Holdings Pte had already dropped plans to sell shares as part of the IPO amid sluggish investor demand. The pork producer had planned to start trading on May 8.

Unlike in most Hong Kong IPOs of more than $1 billion, WH Group didn’t sell shares to cornerstone investors. Such buyers, which are typically guaranteed shares in an IPO in exchange for a pledge not to sell for at least six months, have in past years become increasingly popular among Chinese companies pursuing large offerings.

Xi’s Crackdown

Hong Kong IPOs have raised $6.2 billion this year, compared with $1.2 billion for the same period of 2013, according to data compiled by Bloomberg. Companies that completed first-time share sales in the city this year have fallen on average 6 percent from their offer prices after adjusting for deal size, the data show.

Stock in Chinese pork supplier Huisheng International Holdings Ltd., which started trading in February after a $32 million Hong Kong IPO, has fallen 29 percent since its debut. Growth in pork consumption in China slowed to 1.55 million metric tons last year from 2.81 million tons in 2012, WH Group said in its IPO prospectus, citing estimates from Frost & Sullivan.

Chinese President Xi Jinping has ordered officials to be frugal as he tries to unwind a culture of bribery and graft that has hurt the government’s legitimacy and jeopardized economic growth. The country’s economy is projected to expand 7.3 percent this year, the slowest pace since 1990, based on the median estimate in a Bloomberg survey this month.

WH Group changed its name from Shuanghui International Holdings Ltd. in January.